Compare and contrast the different ways the Federal Reserve would handle a recession and inflation.
What will be an ideal response?
During a recession, the sale of goods and services drops off as many people cut down on their spending. To stimulate the economy, the Federal Reserve increases the money supply. As a result, interest rates decrease and people are more likely to borrow money to purchase homes, automobiles, and other goods. On the other hand, during inflation, the demand for goods and services increases the price level. To curb inflation, the Federal Reserve would reduce the money supply. Because of this, interest rates would go up and fewer people would borrow money to buy products. To convince more people to buy, companies would reduce prices, thus reducing or stopping inflation.
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In perfect competition, the price of the product is determined where the market
A) elasticity of supply equals the market elasticity of demand. B) supply curve and market demand curve intersect. C) average variable cost equals the market average total cost. D) fixed cost is zero.
The period of the business cycle between the peak and the trough is the
A) recession. B) expansion. C) recovery. D) All of the above may fall between the peak and the trough.
Using carefully-labeled graphs, explain how an individual demand curve is derived from the utility-maximizing behavior of a consumer.
What will be an ideal response?
If the demand for loanable funds shifts right, then
a. the real interest rate and the equilibrium quantity of loanable funds both fall. b. the real interest rate falls and the equilibrium quantity of loanable funds rises. c. the real interest rate and the equilibrium quantity of loanable funds both rise. d. the real interest rate rises and the equilibrium quantify of loanable funds falls.